The Chairman of the Presidential Fiscal Policy and Tax Reform Committee, Mr. Taiwo Oyedele has said that under the new personal income tax regime, about 90 per cent of workers in the public service and private sector will pay lower taxes.
Many Nigerians including top politicians have expresses fears that the new personal income tax being proposed by the committee will see low income earners paying more in taxes.
Oyedele who gave this explanation on his X handle, explained how the changes in personal income tax will affect the citizens. He said that under the current regime high inflation and lack of review has resulted in “fiscal drag” where many low income earners have been pushed to the top tax bracket over time.
According to him, “This means that an individual earning just N400 thousand a month is paying the same top marginal income tax rate as a wealthy individual earning say N20 million per month. Therefore, the tax table has become regressive rather than progressive as it was originally designed.”
Oyedele explained that contrary to general perception that workers will pay more tax under the bills, individuals earning about N1.7 million or less per month will pay lower pay as you earn (PAYE) tax under the bills while those earning the new minimum wage and slightly more will be fully exempted.
He said high income earners will pay slightly more in a progressive manner up to 25 per cent for the ultra high networth individuals.
He said besides the N800 thousand per annum which is exempt from tax, there is a rent relief of up to N200 thousand per annum which together will exempt individuals earning up to N1 million per annum (about N83k per month).
“This is particularly beneficial to low income earners,” he said. “Also, the new tax bands and rates have been designed to avoid a situation where individuals earning slightly more than the exemption threshold are taxed to an extent that makes them worse off than a person whose income is within the exemption threshold.
“For example, a person earning N30 thousand per month is exempt from tax while a person earning N30,001 per month will pay about N500 leaving the latter with a net of N29,500 which is N500 worse than the person earning N30,000. Under the tax bills, this problem has been addressed as everyone will be eligible to the first tax-free bracket.”
Oyedele explained that by comparison, the second band under the bills which is to be taxed at 15 per cent is currently being taxed at a marginal rate of 21 per cent even after all reliefs and allowances.
“So, while the 15 per cent may appear steep from 0% for the first band, it is lower compared to the current tax table,” he noted, adding that the real impact for a person earning about N3 million per annum equivalent to the aggregate of the first and second brackets is a lower effective tax rate of 10 per cent compared to about 12 per cent under the current tax table.
He said that one of the objectives of the tax reforms is simplification. According to him, “The impact of the Consolidated Relief Allowance (CRA) and personal relief have been incorporated into the tax table such that the overall goal of exempting low income earners and reducing taxes for middle income earners is achieved.
“By integrating the reliefs into the tax brackets and rates, many taxpayers with basic education would be able to calculate their taxes with little or no assistance thereby achieving the dual objectives of lower tax burden and tax simplification.”
On statutory deductions, which are now referred to as eligible deductions, he said these are still applicable under the new tax bills. “These are contributions under the National Housing Fund, National Health Insurance Scheme, Pension Reform Act, interest on loans for developing an owner-occupied residential house, annuity or premium paid for life insurance, and rent relief up to N200,000 per annum.”
The new tax reform bills now before the Natio al Assembly has generated a lot of controversy with many state governors insisting that the bills be withdrawn.